Article 15 - FABC Accounting

By FABC Accounting
Published On: December 14th, 2025

Keywords

PPOR to investment property market value cost base six year rule CGT investment property CGT property tax planning Australia

How to Save Thousands in Tax When Converting Your Home into an Investment Property

When converting a principal place of residence (PPOR) into an investment property, many Australian homeowners overlook a powerful tax strategy — resetting the cost base to the property’s market value on the day it becomes a rental.

This ATO-recognised method can significantly reduce future Capital Gains Tax (CGT) by excluding growth accrued during the period the property was your home.

1. What Is the Market Value Cost Base Strategy?

When a PPOR is first rented out, owners may elect to use the property’s market value on that date as the new CGT cost base, instead of the original purchase price.

Capital growth during occupancy is effectively locked in tax-free;
Only growth during the rental period becomes taxable;
The overall CGT payable on sale can be substantially reduced.

2. How to Apply the Strategy

This strategy requires careful execution:

Obtain an independent valuation from a licensed valuer;
Ensure the valuation references comparable sales and official data;
Formally elect the market value method when calculating CGT.

Importantly, choosing this method means you cannot apply the six-year main residence exemption for the same period.

3. Who Benefits Most from This Strategy?

Owners whose property appreciated significantly during occupancy;
Long-term rental property investors;
Owners with multiple properties who have already used the six-year rule elsewhere.

4. Risks and Limitations

Valuations may be challenged if not prepared by reputable valuers;
If property values fall after conversion, the original cost base may be preferable;
Foreign residents cannot access main residence CGT exemptions post-2020.

How FABC Accounting Can Assist

Market value vs six-year rule scenario modelling;
Comprehensive CGT minimisation strategies;
Valuation coordination and ATO-compliant documentation;
Long-term investment property tax planning.

Choosing the right strategy requires forward planning. Professional modelling ensures the decision delivers real tax savings without compliance risk.